With Donald Trump now the President Elect and the Republicans controlling the House and Senate, we are likely to see a number of tax changes if his campaign plans and promises hold. As with everything else, the Trump campaign was light on the details but here is what we do know:
- Federal tax rates and brackets would be simplified down to three versus the seven today. Those with a taxable income between $0 and $37,500 ($0 to $75,000 for married filers) would be subject to a 12% tax rate, taxable income between $37,500-$112,500 (or $75,000-$225,000 for married filers) would be subject to a 25% rate. While those with taxable income above $112,500 ($225,000+ for married filers) would be subject to a 33% federal tax rate.
- The standard deduction would more than double to $15,000 for single filers to $30,000 for married couples filing jointly while ending personal exemptions. This increase along with the lower tax brackets would see federal taxes due go down for most Americans.
- Itemized deductions would be capped at $100,000 for single filers and $200,000 for married couples filing jointly. This is down from current levels and in line with Trump’s goal to simplify tax rules and prevent the rich from taking legally gray deductions.
- To promote small business investment Trump would eliminate the 3.8 percent tax on net investment income on people with incomes (MAGI) of over $200,000 for single filers and $250,000 for married filers. The tax rates on long-term capital gains would be kept at the current 0%, 15% and 20%. In a hit to hedge fund managers, there is also a proposal to taxing income from carried interest at ordinary income tax rates.
- A full repeal the alternative minimum tax (AMT) and the estate tax. Under current law, estates valued at more than $5.45 million are subject to a 40% tax rate. Cutting the AMT and estate tax would stand to benefit higher income earners the most.
A lot of Trump’s tax changes won’t go into effect until the 2018 tax year at the earliest, since 2017 tax rates and brackets have already been established and by the time Trump is sworn in will be too late to change things. He also hasn’t laid out any real plan to pay for these tax cuts and proposed no net spending reductions to offset his tax plan’s $7 trillion cost.
Under a Trump plan a middle class tax payers would likely see modest tax savings, while those in highest income ranges would actually see the most in savings given the lowering of the highest marginal tax rate, increase in standard deduction and repeal of the AMT. Under proposed Clinton plans middle income earners saw more tax savings while higher income earners were taxed more heavily.